Financing a Temporary Staffing Company

Running a temporary staffing company can be very profitable. The current business environment favors outsourcing employees, rather than hiring them. This environment creates an attractive opportunity for staffing agencies.

However, operating a staffing agency requires working capital. This requirement is a problem for most agencies, who often don’t have enough capital. It prevents you from running the company effectively and from adding new clients. Ultimately, growth suffers.

Fortunately, this problem can be solved easily with the right type of financing.

It’s all about payroll

The greatest and most important expense for any agency is employee payroll. Employees must be paid regularly and on time. Otherwise, they will choose to work somewhere else.

The agency also needs to have enough funds to pay for employment taxes and other expenses associated with the employee. Falling out of tax compliance, a common problem for agencies, is costly and often puts the company into a tailspin.

Without funds, growth is impossible

Most commercial and government clients pay their invoices in 30 to 60 days. This time frame is often a problem for agencies. If you take on a new client, your company must be able to pay the employee’s salary for up to two months before you start getting paid.

The only way to grow the company is if you have a cash reserve to pay for corporate expenses. Obviously, if you work with larger contracts you need a larger reserve. If you don’t have a reserve, you cannot take on new contracts. And if you can’t take on new contracts, growth is impossible. This vicious cycle is why growing a small agency is so difficult.

Payroll financing help you grow

One of the easiest ways to solve this common financial problem is to use payroll funding. It’s a funding solution designed to help staffing agencies that need working capital.

Payroll financing is a type of invoice factoring, which allows you to finance your slow-paying receivables. This provides your agency with immediate funds. Instead of waiting for commercial and government clients to pay in 60 days, you get paid  by the payroll funding company in a day or two.

Factoring gives you the working capital your agency needs to meet payroll expenses. It helps you grow your business without having to worry about slow-paying clients.

How does factoring work?

Factoring transactions are fairly straightforward. Invoices are financed in two separate payments. The first payment covers about 90% of the gross value of your invoice. This payment is advanced to your agency soon after you submit the invoice for financing.

The second payment, the remaining 10% (less fees), is sent to you once your client pays. Your clients do not need to pay any sooner – they pay on their regular schedule.

To learn more about how a transaction works, read this invoice factoring example.

Easy to get – available to small agencies

One advantage of factoring is that it’s available to small agencies that don’t have many assets – even startups. The factoring company is most interested in the credit quality of your invoices since the invoices are the assets they are financing. Factors can finance invoices only if the payer – your customer – has good commercial credit. This makes factoring an attractive option for small and growing agencies whose greatest asset is a strong roster of clients.

How to grow your agency with factoring

Let’s go over an example of how your agency can use invoice factoring to grow the company. Assume you have a new client that needs six full-time employees for a few months. The client is a large company and has a good reputation. However, they pay invoices in 50 days and you can’t afford to carry the cost of the contract.

The solution is to invoice the client weekly and factor the invoice. This strategy provides you with weekly funds to pay employees, allowing you to service the contract. As long as your clients have good credit and you provide good services, you can use receivables factoring to grow the business. When used properly, factoring can help you grow your company beyond its current financial capabilities.

Need factoring for your staffing agency?

We are a leading factoring company and can provide staffing agencies with high initial factoring advances and low fees. For an instant quote, fill out this form or call us toll-free at (877) 300 3258.